Thailand’s top political leaders huddled this past week in emergency meetings at Government House here as they struggled to hang on to power in a country rattled by a full-blown financial crisis. Outside on the street, thousands of middle-class protesters chanted slogans and waved signs to demand their resignation.
But perhaps the biggest threat to the authority of the Thai elite these days is not home-grown opponents. It is bankers in Washington, London, Tokyo and other far-flung cities.
The currency crisis that has swept through East Asia’s “growth rim” economies in recent weeks has created a crisis of sovereignty for many governments and wealthy business families in the region. To restore the good times the countries’ people expect, foreign money has to come in. Yet the foreigners who control it are insisting on sometimes-deep changes that will affect who creates wealth in these countries and who keeps it.
The International Monetary Fund imposed politically unpopular conditions for the $17 billion bailout it is giving Thailand: The government agreed to raise taxes and cut back on spending in an effort to create a budget surplus next year. It also pledged to stop propping up financial institutions that would otherwise fail.
Now, foreign bankers stationed in this traffic-choked metropolis are holding back a much-needed infusion of new capital into the Thai banking system as they try to extract market changes of their own.
Until now Thailand and many other Asian countries have been able to protect themselves from foreigners through a series of laws limiting foreign ownership and a system of business that relies more on personal relationships and less on balance sheets. In Thailand, the problems of payoffs and corruption have been well documented by the local media.
Foreign bankers have met repeatedly with their Thai counterparts and senior government officials in recent weeks. “There were five or 10 deals ready to go,” said a Western economist, who requested anonymity. But they haven’t yet. The banks “are waiting to see” how much the system will be liberalized and old practices of protecting the elite dismantled.
Banyong Pongpanich, executive director of Phatra Research Institute, a Thai think tank, said officials continue to oppose efforts to liquidate sick financial institutions, making their shareholders suffer because such a move “could mean bankruptcy for half the tycoons in this country.”
Malaysia and Indonesia are feeling similar pressure from abroad. Before foreign investors will dump cash back into those countries’ depressed stock markets, they want some costly pet projects of political leaders there to be canceled - out of fear they will drain national budgets.
This assertiveness in domestic industrial policies has often infuriated leaders and common citizens alike. And many are not going gently into the night.
Malaysian Prime Minister Mahathir Mohamad’s repeated verbal lashings at foreign currency traders in recent weeks were “not irrational outbursts, but his attempt to maintain control over Malaysia’s economic policy,” a Thai economist said. But the foreigners lashed back, withdrawing more money from Malaysia. Mahathir quieted down, and some of his pet projects have indeed been suspended.
For many foreign investors, the target for change in Thailand is the banking system. The country has only 15 commercial banks, many formed by local families in the 1940s and still dominated by them. The banks gave these families access to capital and allowed them to expand into a wide variety of industries, including manufacturing, consumer finance, agribusiness and retailing. Loans and deals often went to friends and associates.
In the past, foreign lenders and investors simply learned to live with behind-closed-doors operations.
Foreign lenders “have been reliant on assurances from authorities, particularly central-bank authorities, about the health of the financial system,” said David Proctor, Thailand country manager for Bank of America and chairman of the Foreign Banks Association here.
Until recently, such assurances generally held firm. But as Thailand, Malaysia, Indonesia and other Asian countries have discovered in recent months, global market forces have robbed even determined, iron-fisted leaders like Mahathir and President Suharto of Indonesia of the power to control their domestic economies.
“A lot of the ex-pats here, they like Thailand, they believe in it, they instinctively think that there are some good investments out there,” one Western economist said. “But they are in big trouble with their home offices, who are complaining ‘you assured us it was safe.’ Now we’re losing millions.”
As it works out details of financial changes required by the IMF, the Thai elite is doing its best to limit change and hang onto influence, foreign bankers here say. And many leaders are playing down the severity of the conditions.
Korn Dabbaransi, Thailand’s deputy prime minister and minister of industry, is from a family that has long been an important player in politics here. He is the nephew of former Prime Minister Chatichai Choonhavan, head of the Chart Pattana party, which is part of the ruling coalition.
In an interview, Korn said he believes much of Thailand’s economic troubles are those of perception. “It has a kind of domino effect because it’s psychological,” he said. “So if you could break the ice with one piece of positive news, then the domino effect would take place in the reverse.”
But Western investors say the problems are very real and are seeking full disclosure of bad-loan levels - a step that would make the financial system more open and diminish the families’ power - and the shutdown of bankrupt financial institutions.
But Korn says the cabinet wants a different approach on fixing the financial system. “Financial institutions will not be shut down,” he said. “They will simply merge and form into a bank,” if they so request, or a “super” financial institution.
The package would allow foreigners for the first time to buy majority ownership stake in banks here. But they could only do so for 10 years, and after that point couldn’t buy any more shares. Over time, that would mean their stakes would be diluted as the banks expanded and issued new shares. Foreigners oppose that restriction.
The Thai cabinet also is insisting it have oversight over two agencies the government proposes creating to handle the financial restructuring. Foreigners warn that such a role would increase the potential for corruption and political manipulation.
But Korn said such fears are unfounded.